Mr. BAKER. Yes, sir. There is only one objection to that: It would, in a measure not to any great extent, not after a while-but at first it would restrain anyone attempting to come into competition.

Senator NEWLANDS. But would you permit the Government to enter into competition with citizens and private companies such a company as a steamship company controlled by a transcontinental line would permit-you would not allow that, would you?

Mr. BAKER. Certainly not.

Senator NEWLANDS. Then the chief danger you have found in the financial market is the fear that in some way the transcontinental lines will control any steamship line and reduce it to a nondividendpaying basis, just as did the Pacific Mail Steamship Co.?

Mr. BAKER. Yes; that is so.

Senator BRANDEGEE. Then, why do you want to enter into this business on this line if there is so much danger?

Mr. BAKER. Because you have this additional protection. Because I do not think they would attempt to fight the Government.

Senator BRANDEGEE. I mean your own line that you are trying to finance.

Mr. BAKER. Because you have the assistance of the Government. That is why I say it would justify the investment of capital for that $750,000 a year.

Senator BRANDEGEE. You would be willing to take the danger if you got that bonus?

Mr. BAKER. Yes, sir; it would help.

The ACTING CHAIRMAN. Mr. Baker, the committee is very much obliged to you for your appearance upon this subject.

Mr. BAKER. I thank you very much. You certainly have been very considerate of me. I have only one object, and that is the best interest that can be obtained.

(Mr. Baker was thereupon excused.)

The ACTING CHAIRMAN. I have a matter to submit to the committee before we take a recess. The only other witness we have here now is Mr. Levy, of New York. He, as you know, is the attorney for the Independent Tobacco Co., and formerly connected, I think, with the Department of Justice. He would prefer not to go on until tomorrow morning, for the reason that he wants to prepare certain copies that he has not at hand just now. If there is no objection, we will have no afternoon session to-day and will adjourn until to-morrow morning at 10.30.

(There being no objection, the committee adjourned at 1.30 p. m. until to-morrow, Tuesday, November 21, 1911, at 10.30 a. m.)

TUESDAY, NOVEMBER 21, 1911.

UNITED STATES SENATE,

COMMITTEE ON INTERSTATE COMMERCE,

Washington, D. C.

The committee met at 10.30 o'clock a. m. for the purpose of further considering the bill (S. 2941) entitled "A bill to create an interstate trade commission, to define its powers and duties, and for other purcases," introduced by Mr. Newlands July 5, 1911.

Present: Senators Cummins (acting chairman), Brandegee, Oliver, Townsend, Newlands, Watson, and Pomerene.

The ACTING CHAIRMAN. In the absence of the chairman (Mr. Clapp) I will take the liberty of presiding. Mr. Levy, the committee will be glad to hear from you.

STATEMENT OF MR. FELIX H. LEVY, LAWYER, NEW YORK CITY.

The ACTING CHAIRMAN. Have you been connected at any time with the Department of Justice?

Mr. LEVY. I was from March, 1905, to June, 1907.

The ACTING CHAIRMAN. In what capacity?

Mr. LEVY. I was special counsel to the Department of Justice and special assistant to the Attorney General, who was then Mr. Moody, and for a short time afterwards Mr. Bonaparte.

The ACTING CHAIRMAN. Had you anything to do with the enforcement of the law which is now under consideration by this committee? Mr. LEVY. That appointment was solely with reference to the investigation and prosecution of the Tobacco Trust, and therefore, of course, under the Sherman law.

The ACTING CHAIRMAN. Have you been counsel for any of what are known as the Independent Tobacco Associations?

Mr. LEVY. I have-for two or three of the large associations, which are composed of a very large number of the boards of trade of a great many cities, representing independent tobacco interests, and acted in harmony-I may say, in general-with the independent opposition that asserted itself in the circuit court in New York.

The ACTING CHAIRMAN. Will you now give the committee your views with respect to the antitrust law, its operation, and respecting any changes that ought to be made in it? You may make your statement in your own way and without any interruption on the part of the committee until you have finished.

Mr. LEVY. At the outset, I wish to say that I have come before your committee in response to the request of your chairman, Senator Clapp. This request was unsolicited by me and, indeed, unexpected. I say this so that it may not appear that I am here as a voluntary witness. I have, however, come quite willingly to give to your committee such information as I may possess with regard to the enforcement of the Sherman antitrust law and to the question of its amendment or enlargement. This information is based chiefly, but not solely, upon the professional experience which I have gained in governmental prosecutions of the Tobacco Trust, in which I was engaged a few years ago, and in private employment since that time, and quite recently in opposing the plan of disintegration proposed by the tobacco combination and within the past few days approved by the circuit court in New York City.

I may say at the beginning, with all that respect which a citizen should feel for the courts, that, in my judgment and in the judgmen of the great majority of the persons, official and nonofficial, who are competent to express an opinion on the subject, the plan thus proposed by the tobacco combination and approved by the Attorney General and the circuit court, as a supposed compliance with the decree of the United States Supreme Court, is a sham and a subter22877°-VOL 1-12-19

fuge on the part of the tobacco combination, knowingly devised by it for the purpose of creating the appearance of carrying out the Supreme Court's mandate, but in reality intended to retain for the convicted conspirators, namely, the 29 individual defendants and their confederates, the fruits of their unlawful conspiracy, with its monopoly value unimpaired. Indeed, if the prices of their securities as shown on the New York Stock Exchange may be taken as a proper criterion, the result of the approval of their plan has been to increase substantially the value of their unlawfully acquired property.

I say, therefore, that these defendants have succeeded in making their property more valuable than it was before, although the Government, after a litigation begun in 1904 or 1905, obtained in May, 1911, from the Supreme Court a decree of the most drastic nature, condemning these companies and these defendants as conspirators.

The plan thus proposed, in the judgment of those well qualified to speak, will result in the sacrifice of virtually all the benefits intended to be given to the people of the United States by the notable victory won by the Government against this most unscrupulous combination. I realize that this is strong language, but I shall justify it before I get through.

The litigation was begun by Attorney General Moody, under the direction of President Roosevelt, in the early part of 1905. My official connection with the prosecution continued from March, 1905, to June, 1907 (some two years and more), during which time I was special counsel to the Department of Justice and a special assistant to the Attorney General for the investigation and prosecution of the Tobacco Trust. Shortly prior to June, 1907, Mr. James C. McReynolds took up the work in behalf of the Attorney General and has carried it through with distinguished ability, against great difficulties, to the very notable victory which he won in the final decree of the Supreme Court in May, 1911.

In 1905 and 1906 the trust succeeded in blocking the efforts of the Government for one and a half years by refusing to allow its officials to give testimony before the grand jury in New York. Contempt proceedings followed and the matter resulted in favor of the Government by the important decision of the Supreme Court in Hale v. Henkel, which has definitely settled the right of the Government to obtain information from corporations engaged in interstate commerce. This decision, and the information then obtained through the grand jury in New York, resulted promptly in the finding of an indictment against the licorice-paste monopoly (a very complete monopoly held within the bigger tobacco monopoly). The two leading officers of the Licorice Trust were also indicted. This was under the Sherman law-the criminal provisions of that law. Although every legal device, by demurrer, was resorted to, the legal sufficiency of the criminal provisions of the Sherman law was held good by the courts. Under a state of facts which showed a most shameless disregard of the law-both the statute and the moral law-the jury found a verdict of guilty against the two indicted companies, but not guilty against the two presidents of these companies. This result is wholly unexplainable upon any logical ground. It could only have been that the state of popular opinion in New York City in 1906 was not such as to induce a jury to send to prison for a trust conspiracy men

otherwise respectable and prominent in the community. It is a question whether that state of mind still obtains.

This case in enough to show that the Sherman law is broad enough in its criminal provisions; indeed, that, having reference to the state of opinion existing, at least in New York, in 1906, it was too broad. This is a very comprehensive subject and full of detail. I will state that the popular opinion was shown 10 years earlier in New York, in 1896, when the directors of this same company were indicted under the State statutes against conspiracy, and the jury in that case disagreed, it being well understood that they voted 10 in favor of conviction and 2 against, and it was also well understood that the reason was that those were prominent men, and they were guilty of what the public had not got used to regarding as a serious crime. I mention that as showing that popular opinion has a great deal to do with the enforcement of the criminal provisions of this law-and of any law, but notably of this law.

Proceeding from that general introduction, I would say that the plan that was proposed by the Tobacco Co. for its disintegration was, in the judgment of those who I think ought to be regarded as people who know-that is, men in the trade who have suffered and fought under the domination of this trust, and of the best thought that we could command-a plan which was wrong in principle and wrong in detail. It was wrong in principle mainly upon the larger feature, the most important feature of it-this matter of joint-stock ownership. It seemed to us and to many-I think to most-that the conception that four companies engaged in the same business, owned by the same men, should compete with each other is an unthinkable proposition. That was the fundamental proposition we made. We made four other principle objections. I shall be as brief as possible, and if I go too far into the subject I trust the committee will stop me.

The second objection was the size of these four companies. They are to have a capital stock of $57,000,000 for one-I may be a little wrong about those figures, as I speak from memory, but they are substantially correct-$46,000,000 as to another, $100,000,000 as to the other, and the fourth not so big, about $15,000,000.

Now, we thought, and it was the general belief, that even if this vicious plan, as we thought it, of joint-stock ownership should prevail, that nevertheless there ought to be more companies, and therefore each one smaller.

The ACTING CHAIRMAN. May I interrupt you to ask the reporter if the plan which was approved by the circuit court has been made a part of our record?

Mr. LEVY. I will say that I have it here. If it has not been, I shall be glad to submit it.

The ACTING CHAIRMAN. The committee will be glad to have you put it in and make it a part of our record.

Mr. Levy. I will say that I have in my hand the final decree which was entered in the circuit court on the 16th day of November, 1911, to which is prefixed the opinions of the judges of the circuit court, which will perhaps make them more convenient for reference. I will offer the whole thing.

(The paper referred to is as follows:)

[In the Circuit Court of the United States for the Southern District of New York. United States of America v. The American Tobacco Co. and others.]

OPINIONS OF THE COURT AND DECREE.

Before Lacombe, Coxe, Ward, and Noyes, circuit judges.

The United States v. The American Tobacco Co. and others.

OPINION OF CIRCUIT JUDGE LACOMBE.

In compliance with the directions of the Supreme Court we have heard the parties upon a plan proposed by the American Tobacco Co. for “dissolving the combination and for re-creating out of the elements now composing it a new condition which shall honestly be in harmony with and not repugnant to the law." The proposed plan was filed two weeks before this hearing, at which not only the parties but any persons interested who might wish to express their views as friends of the court were given opportunity so to do.

While the plan is correctly described as the proposed plan of the American Tobacco Co. since that corporation and the other defendants offer to carry it out, it should be remembered that in its present form the plan is the fruit of much discussion. For upward of two months successive conferences, in the presence of two or more members of the court, were had between the Attorney General and the counsel and representatives of the Tobacco Co. Objections of the Attorney General were followed by modifications of the plan, some of its most drastic provisions being inserted in order to meet or avoid his criticisms. When a point was reached where such adjustment of differences ceased to be practicable, a time was fixed for a hearing before the whole court upon the matters remaining in dispute. It was in the course of these conferences that a very material reduction of the holdings of the American Tobacco Co. was brought about. According to the plan as originally proposed it was to retain in its treasury, in addition to its working capital, sufficient to pay the outstanding bonds when they matured, about $104,000,000. To this the Attorney General at once objected, insisting that the possession of this enormous amount of money over and above its capital invested in the tobacco business was fraught with possibilities of evil use, that it would be a standing menace to all competitors and could not be tolerated. While not fully conceding the justice of this criticism, counsel for defendants promptly stated that they would undertake to eliminate it. After discussion of two different methods of so doing, which themselves presented other difficulties, defendants at the last conference submitted the present scheme, whereby half of the outstanding bonds would be bought up (and canceled) at a price in excess of their present value, thus insuring a willing surrender of them by present holders, and for the other half securities of the new companies would be offered on a basis of exchange which would insure acceptance of the offer. Since the plan was filed the market reports have given quotations of such bonds of the new companies "if and when." While such reports are possibly not competent evidence in the trial of a cause, they seem to indicate that if the present plan be approved, a very brief period will suffice for the disappearance of substantially all the old bonds and the elimination from the treasury of the American company of the money or securities required to make them good at maturity. Thus the menace of holding an enormous amount of money, additional to what is legitimately used in the business of the American company, will disappear. Upon the hearing committees representing a majority of the holders of both issues of bonds appeared and requested the court to approve the plan. Out of the entire two issues, amounting to over $100,000,000, one holder only of ten 4 per cent bonds appeared to object on the ground that the terms offered for sale and exchange were not satisfactory to him. Inasmuch as he is under no obligation to accept the offer if it does not please him, and the security for his bonds, if the plan be carried out, will be ample, no modification of the plan is necessary to protect him or others similarly situated. A committee representing a majority of the preferred-stock holders also asked that the proposed plan be approved.

The plan contains very many provisions, necessarily so because of the intricate nature of the combination of corporations about to be disrupted. It would